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Second Circuit Holds Taxpayer Not Subject to IRS Summons

In a decision limiting the ability of the IRS to compel a taxpayer to produce summonsed documents, the Second Circuit vacated and remanded a district court order compelling the defendant, Steven Greenfield, to comply with IRS summonses to produce documents related to his offshore accounts, holding that the foregone-conclusion doctrine did not apply to permit the IRS to avoid Greenfield’s Fifth Amendment right against self-incrimination (Greenfield, No. 15-543 (2d Cir. 8/1/16)).

Greenfield’s case originated in 2008 when an employee of the Liechtenstein Global Trust (LGT), a private financial institution associated with the Liechtenstein royal family, leaked thousands of documents exposing hidden offshore accounts at the institution, including those held by Greenfield and his father. As a result of these disclosures, the U.S. Senate’s Permanent Subcommittee on Investigation held hearings that year, during which Greenfield either failed to appear (at the first hearing) or invoked his right against self-incrimination at the second hearing.

The IRS audited Greenfield’s 2005 return and then expanded the audit to include his 2006 return. Among the documents it requested was information about the LGT accounts mentioned in the leaked documents as well as all documents relating to foreign entities. (The original broader information document requests were later narrowed by the IRS.)

After Greenfield refused to comply with the document requests, arguing that the compelled production would violate his right against “testimonial” self-incrimination, the IRS brought this enforcement action. The IRS claimed the Supreme Court doctrine in Fisher, 425 U.S. 391 (1976), applied, and as a result the act of producing the documents did not violate the Fifth Amendment because it was a foregone conclusion that the documents existed, that Greenfield had control over them, and that they were authentic.

The district court held that the summonses were enforceable because the foregone-conclusion exception applied. It cited an earlier case involving the same document leak, in which the court had enforced the summons because the government had “specific knowledge of the accounts and the individual who controlled the accounts” (Greenfield, slip op. at 9, citing Gendreau, No. 12-Misc-303(S.D.N.Y. 1/22/14)).

In vacating and remanding the district court’s decision, the appeals court first looked at the Fifth Amendment privilege against self-incrimination, explaining that constitutional rights are broadly construed. The privilege therefore applies not only to testimony, but also to the production of documents that could be incriminating. One exception to the privilege against self-incrimination is the foregone conclusion doctrine, which holds that the government can compel the production of certain documents if the production of the documents does not amount to testimony.

The foregone-conclusion doctrine applies if the government knows the documents exist, knows that the taxpayer possesses or controls the documents, and knows that the documents are authentic. Therefore, compliance with the summons would be a question not of testimony but of surrendering the documents.

With respect to the foregone-conclusion doctrine, the appeals court determined that the time when the prerequisites for the exception (existence, control, and authenticity) would have to be met was when the IRS issued its summons in 2013. The appeals court found that, although some of the documents might have satisfied these tests years ago, in 2013 none of the prerequisites for the exception were met for any of the documents the IRS sought. For example, the IRS sought Greenfield’s expired passports, and the court found that they existed, were in his control, and were authentic as of 2001. However, it found that the elements were not met in 2013, when the IRS first requested the passports, because he was unlikely to have kept expired passports for so long, and therefore it was not a foregone conclusion that the passports still existed or that the taxpayer still possessed them. Consequently, the court vacated and remanded the case to the district court, which must then grant Greenfield’s motion to squash the summonses.

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